Tyler Cowen: The Free Market and Morality

Tyler Cowen: Tyler Cowen, Professor of Economics, George Mason University.


Question: Are human beings inherently good?


Tyler Cowen: Well, I think most people are basically selfish but they’re selfish in a way which is fairly reasonable. They want a good life for themselves and for their immediate family but they don’t want that life at the expense of having to be violent against other people or having to become an ogre, so that’s a mix of benevolence and selfish, and occasionally, people will do something truly wonderful or truly saintly, and that’s my core model of human nature. I don’t think people are depraved but they’re not always incredibly generous either. What markets do is they give people more resources, more resources to meet ends, most of those resources are used for selfish ends. We feed ourselves, we buy clothes for our family, we build homes. In my opinion, these are fundamentally healthy impulses and we cannot rule over the other fellow anyway. We don’t always know what’s good for other people.

So I think for the most part, markets and capitalists’ wealth help people become more of what they are, that’s something, in most cases, entirely acceptable. There are exceptions. There are people who are psychotics. And in a market economy, they can buy a gun, whereas back in the Stone Age, they only had a club and that make society worse. That’s a case where markets, I wouldn’t say they corrupted the psychotic, but they help a corrupted person be more destructive, but if you look at the world as a whole, do you see more production or do you see more destruction in market economies? I think it’s pretty clear what the answer is. You see a lot more production, you see a lot more cooperation, you see a lot more people striving after noble ends even if it’s just for their own happiness and the happiness of their families.


Question: How important is government regulation?


Tyler Cowen: Well, regulation is a very tricky word. I think obviously there’s a place for regulation in a free market, just enforcing contracts is regulation, stopping fraud. If I sell you a can of fish but it’s poisoned, regulation in the legal system should do something against that. But I think in today’s world, we’ve taken a lot of regulation too far.

There’s an enormous amount of micromanagement of transactions. Pick up a copy of the federal register, it’s about this thick everyday, it’s hundreds of pages of micromanage regulations often enforced by bureaucrats who are working from the outside. They don’t really understand what is best for transactions and they’re not doing as good a job at improving the quality of our lives as we could do ourselves.


Question: Did greed cause the financial crisis?


Tyler Cowen: I think some of the people in the financial sector were immoral and deeply immoral. There were people who sold packages of mortgages and knew they weren’t good. There were some people who borrowed money knowing that they could never repay it. But I think the majority of mistakes were genuinely honest mistakes.

People messed up, people self-deceived, people were weak or people just didn’t understand, but financial products are extremely tricky and sophisticated and it’s not the case that everyone out there was acting in a corrupt fashion. Most of the people who made these mistakes were good, honest people like you and I, you know, hope we are. And a lot of people have lost money probably including the two of us, but it doesn’t we’re somehow rotten or corrupt. So mostly it was a mistake and a failure to perceive that the world had somehow shifted and that it had become far riskier in a way we just weren’t understanding.


Question: What would you do if you were Treasury Secretary?


Tyler Cowen: If I were the Treasury Secretary right now, I would consider resigning in disgrace, because what Henry Paulson did was he told us, not many weeks ago, that it was necessary to purchase assets from banks at inflated prices and that if we didn’t do this essentially the world will come to an end. Paulson today held a press conference and he said, we don’t need to do this anymore, we’re going to spend that money in other places, we’re going to subsidize people using their credit cards, which in my opinion is crazy, spending more money is not what we need, we’re going to send some of that money to General Motors which I think is a lost cause at this point.

And in essence, the 1st half of the $700 billion that was approved, most of that money is going to be wasted, it was drummed up on the grounds of a scare tactic, some of it has been wisely spent recapitalizing banks, but most of it has been wasted or will be wasted. It’s being spent on [pork], it’s being spent on special interests, and we as voters were tricked, misled and lied to. And if you’re looking at what might be behavior of questionable morality, I would have to look, you know, square down the road at our federal government and ask have they’ve been honest and transparent with us during this financial crisis, and sadly it seems more and more everyday that the answer is no.


Question: Should we embrace globalization?


Tyler Cowen: If you go back and you look at world history, whenever good things have been happening, it’s generally been an era of globalization. Take the growth of the Roman empire, that was a kind of globalization of Europe. Take the rise of the Renaissance that was rebirth of cities, reopening of trade routes, the drawing of scientific ideas from China and the Islamic world, that was an era of globalization. Take the fantastic growth of prosperity and liberty in the 19th century or after World War II, again, you will find eras of globalization.

If you want to take a look at deglobalization, retrenchment, go to the Dark Ages, that’s what the opposite of globalization looks like, so I think we absolutely are at the point where we need to embrace globalization, the benefits are far greater than the costs and realize that it’s here to stay.


Recorded on: November 12, 2008

The George Mason economist answers the Big Question, "Does the free market corrode moral character?"

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